VOO vs. SPY: Is There Actually a Difference?
Key Points
The Vanguard S&P 500 ETF (VOO) and the State Street SPDR S&P 500 ETF (SPY) are two of the largest funds in the world.
VOO is cheaper and generally preferred by retail buy-and-hold investors.
Big institutions tend to like SPY's strong liquidity and tradeability.
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If you're trying to choose between the Vanguard S&P 500 ETF (NYSEMKT: VOO) and the State Street SPDR S&P 500 ETF (NYSEMKT: SPY), it might seem they're essentially interchangeable. They're both huge and track the same index.
At a high level, that's probably true. But if you want to dive deep and get picky, a few factors set them apart.
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VOO is slightly cheaper than SPY
The State Street SPDR S&P 500 ETF has an expense ratio of 0.0945%. The Vanguard S&P 500 ETF charges just 0.03%. Given that the index has historically returned about 10% per year, this fee difference may seem immaterial. But I will take any advantage I can get.
Because of their sizes, trading spreads (the difference between the buying (ask) price and the selling (bid) price of a stock) are virtually nothing, so spreads aren't really a consideration here. But if you can own the exact same index for a third of the cost, why not?
SPY is preferred by institutions; VOO is preferred by retail
Even though the Vanguard S&P 500 ETF has roughly $200 billion more in assets under management, it has only about 20% the trading volume of the State Street SPDR S&P 500 ETF. This advantage in tradeability and liquidity makes the latter the preferred trading vehicle for large traders and institutions.
The Vanguard S&P 500 ETF, on the other hand, tends to be used more often by retail buy-and-hold investors. It's a minor difference, but one worth being aware of.
Overall, the differences between the two ETFs are minor. The investment itself is obviously the same, but the Vanguard S&P 500 ETF comes with a distinct cost advantage. For retail investors, it's probably the better choice.
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David Dierking has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
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